CFPB Official Says Advance Payment Products May Be Loans

  • Consumer groups said Trump-era guidance was misused
  • The attorney general says the agency should clarify its position

(Reuters) – An official with the U.S. Consumer Financial Protection Bureau said the agency is reconsidering its Trump-era guidance on advance payment companies, saying some of their products may be loans.

Acting General Counsel Seth Frotman said in a letter told consumer advocates Tuesday that legal opinion exempting some earned wage access (EWA) products from lending regulation has created “significant confusion.” The products allow employees to collect the wages they have earned before payday.

Some EWA companies work directly with consumers, others offer their services through employers, including Walmart and PayPal. The companies describe themselves as a sustainable alternative to high-interest payday loans and bank overdrafts.

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The CFPB said in 2020 that products offered for free through an employer should not be regulated as consumer credit under the Truth in Lending Act. Consumer advocates have called for the opinion to be rescinded, arguing that regulating products like credit will protect consumers.

In his letter Tuesday, Frotman said the products may be creditable under other state and federal laws. EWA products that charge fees or ask for voluntary “tips” may also be loans under TILA, he wrote.

Frotman said he would ask CFPB Director Rohit Chopra to clarify the agency’s position.

The letter came in response to New Jersey consumer advocates who said the CFPB’s opinion was being used to argue for exempting EWA from state interest rate caps.

Read more: Consumer advocates urge CFPB to rein in advance payment companies

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